Timestamp: 18 October 2023 @ 0930 Pacific
Rent Control Is a Disaster — Don’t Let It Spread Across the Nation
By Betsy McCaughey
10/11/2023
America’s renters—more than one-third of the nation’s households—are in for trouble. Left-wing politicians are demanding rent regulation from coast to coast. Wherever it is adopted, the result will be a disastrous reduction in the rental housing supply, leaving renters desperate for places to live.
New York is the poster child for the failures of rent regulation. The U.S. Supreme Court is currently mulling a challenge to the constitutionality of the city’s rent regime.
Whatever the justices decide, the public needs to consider less destructive, more targeted ways to help low-income people pay for housing. The court of public opinion needs to consider these facts.
Fact No. 1: Rent regulation isn’t targeted to the poor. In New York, there’s no means test. What you need is luck or connections. The mean income of a rent-stabilized apartment dweller is $47,000, but census data show that tens of thousands of them earn more than $150,000 per year. Some occupants use what they’re saving on rent to pay for a weekend place in the Hamptons or New England.
The pols don’t object—a sure sign they’re calling for rent regulation to help themselves politically, not the poor.
In New York, 44 percent of rental apartments are regulated by the Rent Guidelines Board (RGB), established in 1969, which sets the maximum amount by which landlords are allowed to raise the rent. Those limits apply to all buildings of six or more units built before 1974.
In 2022, the RGB set the maximum rent hike at 3.25 percent on one-year leases and this year at 3 percent. Never mind that last year, fuel costs to heat the buildings soared by 19 percent and overall inflation hit 8.3 percent.
The decisions are political, not economic. Many Democratic politicians vilify building owners as “greedy landlords” and depict themselves as the champions of the downtrodden. It’s a scam.
Fact No. 2: Winners and losers. The winners are the lucky few with rent-regulated apartments and the pols who count on an army of tenant activists to turn out at the polls. The losers are the 56 percent of renters who don’t score a regulated apartment and have to scour neighborhoods for an unregulated place that they can afford. They’re paying more.
Why? Because regulation causes some landlords to walk away, reducing the overall supply of apartments. The laws of supply and demand mean rents go up. New Yorkers in unregulated apartments are paying the highest rents in the United States for a one-bedroom apartment. They're the real victims, and they should be furious.
Yet the left-wing press pretends that rent control offers only benefits. The New Republic warns that the Supreme Court challenge threatens “laws that have benefitted the city’s tenants for generations.” Sorry, untrue—only some tenants, and not always the neediest.
It’s economic madness. The saner way to help those who need assistance paying rent is with a voucher. We offer the needy SNAP debit cards to help them pay for groceries. No one slaps price controls on grocery stores or designates certain stores as “regulated,” forcing them to sell at below cost.
Yet New York forces certain landlords to pay what should be a public cost shared by all, an argument made to the court.
Fact No. 3: The Marxist fantasy that rent regulation will help the poor is spreading across the United States and Europe as well. Maine and Minnesota have enacted laws allowing municipalities to impose rent regulations. In November 2024, California voters will be asked to approve a proposition allowing local governments to add additional restrictions to the state’s existing rent caps.
The laws of supply and demand are international. Berlin froze rents in 2019, and the rental supply plummeted, according to the Ifo Institute, a think tank.
Yet London Mayor Sadiq Khan is calling for freezing rents for two years. London provides housing vouchers to the poor—a smarter approach—but when the city froze the voucher amounts during the COVID-19 pandemic, fewer apartments were available in the price range. The answer is to raise the voucher amount. Freezing rents will only make the shortage worse.
Ignore the demagogues. The evidence is in: Rent regulation is a political scam. There are better ways to help Americans afford a place to live.
Keywords: Fortuna Humboldt California US STEM Ziosphere land prices real estate rental housing purchase lease artificial scarcity market peer pressure legislation
Comment: We think the problem is the owners; not the renters.
We think the problem started in the 1970s when criminals with large amounts of money to invest came to the United States from places like Hong Kong and Russia, investing in locales like Manhattan (an island) and San Francisco (a peninsula). Almost every square foot of these sorts of locations had already been developed and there was no place to go but up.
Some of these criminals-turned-investors already knew this; the rest of them figured it out quickly. The big money was in renting one square foot of space out, over and over and over, by building floor after floor after floor, going up and up and up.
Do the math: A 10'x10' studio apartment renting out for $1000/month is $10 per square foot. Stack 19 more floors like that one on top of one another and you're making $200 from EACH SQUARE FOOT of your property, PER MONTH. Double your floors, double your money. There's no incentive NOT to build up ... and up ... and up.
This is the basis of the desire for high-rise apartments. They are more profitable than low-rise apartments.
But this drive to build upwards was stifled by local governments that did not want high-rise buildings obstructing their cities' vistas. And so the money is now in turning houses into rentals.
An interesting dynamic developed in Silicon Valley during the 1990s and the early 2000s where employees who were making $100K/year were unable to find houses to buy - this was basically because their managers, who were making $200K, were investing all the bonus money they got from holding their employees' salaries down in buying houses which they then rented out to the employees who were (deliberately) not being paid enough to buy a house. This dynamic continues, even today - although now, most of the owners are foreigners.
We think the basis of this whole real estate problem is foreigners concealing their money inside the United States' economy by investing in real estate and so we think the first thing to do is to outlaw foreign ownership of real estate - land or buildings.
It's that simple. and it's not controversial - many other countries restrict or outright forbid foreigners from owning land, for good and basic reasons. We should do the same. We should also seek out, identify, and punish the politicians who created this situation, to ensure that ten years from now this state of affairs does not return to our shores, resurrected by the same operators who created the problem the first time around.
We also think that apartments and houses are different kinds of buildings that deserve different treatment.
Apartments are where we want single people and couples to live. They haven't decided where they want to live yet, they don't have children, they are letting their career dictate where they live - fine, but the consequence of that, if you live in a city, is that you live in an apartment.
Houses are for people who intend to stay here and become part of the community - a house connotates stability and there are many people who seek to cultivate an image of stability by renting a house, but, really, it's all PR, they are only here for a year or two and they are just playing a role. We should discourage role-playing and reserve houses for people with children and dependents.
People and companies who want to build apartments and rent them out need to allow those apartments to be inspected between each lease, and they need to leave them empty for a few weeks between each tenant, and they need to control their greed and only charge rents that are in line with the local economy. If these people and companies don't like these rules they can go build their own city - our cities must be communities, with common interests - not just sources of revenue in a spreadsheet.
There are obviously a lot of gray areas between these hard-and-fast definitions but these can be enforced by tying the regulations to housing and occupant density. If you want to invest in rental real estate in a large city where there are more economic opportunities, there are some rules you need to follow. If you don't like it, go invest elsewhere.
Perhaps we need some new cities, as well.
We have read that some countries make a policy of building extra housing in anticipation of population growth. They never allow the artificial scarcity that allows price gouging to even begin to exist by always ensuring an abundance of housing. These countries do not have a homeless problem and nobody dies from exposure on the streets during the summers or winters.
By our standards, these countries are more civilized than the United States seems to be - and that troubles us.
We hope it troubles you, too.
So, yes - let rent control spread across the nation until the people trying to control the housing market realize that there is more profit to be had in solving problems than there is a creatng problems - or until they are in prison.
If these people don't want to try building houses and selling them at a reasonable markup, we can find others, who do.